USPS could increase revenue with government shipping

Wednesday, January 23, 2013

The U.S. Office of the Inspector General in an audit said the Postal Service could generate additional revenue of $17.4 million in 2013 and 2014 by focusing more attention on government shipping contracts.
Under the Federal Supply Schedule program, the General Services Administration establishes shipping contracts with vendors for every governmental agency, securing discounts from each provider. For years, USPS has been losing out on these contracts to express carriers FedEx and UPS. The GSA has had shipping contracts with USPS since May 2009, while FedEx and UPS have been on board since 2001. Competitors to the Postal Service (FedEx and UPS are only the largest two competitors) have captured 98 percent of the federal shipping market.
In 2011, the government spent a total of $342.6 million in shipping services, with FedEx accounting for $205.2 million and UPS generating $131.7 million in revenue. The USPS earned $1.2 million. The Postal Service’s government revenue ascended to $4.8 million in 2012, still far off pace from FedEx’s $190.1 million and UPS’ $138.7 million.
USPS has been out earned for a number of reasons, but a lack of pricing flexibility and a dearth of shipping products has hurt it the most. Prices, officials found, are simply not competitive, and USPS’ lack of guaranteed express services is a disadvantage. As an example, in October, the price of sending a one-pound shipment next day stood at $11.54 for USPS express, but FedEX standard overnight was $4.95, and USPS next-day air saver $6.28, through prices negotiated by GSA. As the weight and number of zones the shipment has to cross increases, the disparity between prices gets wider. Prices are much closer together among the providers for two- to three-day mail.
Late entry into the government market has also worked against the Postal Service, because agencies that have long-term relationships are reluctant to switch to new providers. The fact that USPS takes limited payment options hasn’t helped.
Finally, USPS hasn’t gotten much work form the Defense Department, because the organization likes to use providers that have an air fleet and can make it available during crises.
If USPS addresses these challenges, the OIG found, it will start to take market share away from its main competitors.
“Enhancing the Postal Service’s visibility and accessibility to federal
agencies could enable the Postal Service to better reach target
audiences and inform customers, with the end goal of increasing sales to
federal entities,” OIG report said.
At the end of the report, officials included a reaction by USPS management, writing that the Postal Service is addressing the GSA pricing structure and will also look at its payment methods — which were deemed insufficient — and services offered to government. A tentative timeline for the changes was set for January 2014. Since competitive pricing and expanded product offerings don’t currently exist, USPS management said it’s impossible to predict how much they could increase in revenue in 2013 and 2014, saying the $34.8 million two-year total might be off base.
Any bit of increased revenue will be a boost for USPS, which was forced to default last year on $11.1 billion in mandated payments to the U.S. Treasury. These payments were a large portion of the company’s year-end loss of $15.9 billion.
The Postal Service board of governors convened earlier this month, directing management to speed up the restructuring process and focusing on reducing more costs. USPS continues to cut retail, delivery and processing services in an effort that has reduced its annual cost base by $15 billion since 2006. In that same period, USPS’ workforce has been winnowed down by 24 percent. - Jon Ross